A Presentation by: Craig Jagger Chief Economist House Committee on Agriculture Craig.jagger@mail.house.gov 202 225-1130

1. Understanding the Congressional Budget Process and How It Affects Farm Policy A Presentation by: Craig Jagger Chief Economist House Committee on Agriculture Craig.jagger@mail.house.gov 202 225-1130 University of Arkansas Future Focus Lecture Series April 21, 2009

2. House Ag Committee Background

3. Timeline for Establishment of Selected Agriculture Institutions • 1820: House Committee on Agriculture established • 1825: Senate Committee on Agriculture, Nutrition, and Forestry established • 1862: U.S. Department of Agriculture established but without Cabinet rank. • 1889: U.S. Department of Agriculture granted Cabinet Rank. • 1921: House Agricultural Appropriations Subcommittee created • 1922: Senate Agricultural Appropriations Subcommittee created. Note: Prior to 1920, appropriations for the U.S. Department of Agriculture and its programs were under the jurisdiction of the Agriculture Committees.

4. House Agriculture Committee: Members • 45 Members: 27 Democrats, 18 Republicans • 6 Subcommittees: • Conservation, Credit, Energy, and Research • Department Operations, Oversight, Nutrition, and Forestry • General Farm Commodities and Risk Management • Horticulture and Organic Agriculture • Livestock, Dairy, and Poultry • Specialty Crops, Rural Development and Foreign Agriculture

6. House Agriculture Committee:Related Staff and Resources • Committee Staff and Resources: • The Majority traditionally controls 2/3 of the Committee’s Staff positions and 2/3 of the Committee’s budget • Current staffing Levels: 44 staff: 31-D, 13-R. • The Majority Staff includes several “non-political positions” (e.g. Chief Clerk, Legislative Clerk, Financial Administrator, IT Director) • Personal Staff: • Each Member office has several Legislative Assistants (LAs) • One of the LAs swill have agriculture as one of several issue areas in his or her portfolio.

7. Procedural Background:The Importance of Committee Jurisdiction

8. Jurisdiction Issues Affected the 2008 Farm Bill and Will Affect Many Issues on the 2009 Congressional Agenda Committee Jurisdiction: • The subjects and functions assigned to a committee by rule, resolution, precedent, or practice, including legislative matters, oversight and investigations, and [in the Senate], nominations of executive officers. Bottom Line: • Just because it’s in the farm bill doesn’t mean that the Ag Committees have jurisdiction • If you want to change a provision, it has to go through the committee with jurisdiction.

9. Which Committee Has Jurisdiction for an Issue Can Affect the Outcome Examples: • The House Ways and Means Committee and the Senate Finance Committee have jurisdiction for the ethanol tax credit subsidy rate (which the farm bill changed from 51 cents to 45 cents). • In the Senate, the Ag Committee has jurisdiction for Child Nutrition programs but in the House, the Education and Labor Committee (not Ag) has jurisdiction.

10. Jurisdiction (Continued) • For the 2008 Farm Bill, normal shared (or other sole) jurisdiction in the House led to 33 of 49 House conferees being from 11 Committees other than Agriculture (who only voted on titles/sections under their jurisdiction). • Examples of 2009 Ag-Related Concerns where Jurisdiction is an Issue • Food Safety • Derivatives Regulation • Global Warming and Climate Change • Energy Programs

11. Agriculture and the Budget

12. 2008 Farm Bill (and other) Policy Questions • Why was ACRE included in the farm bill? • Why is the price component for ACRE based on the previous two years rather than, for example, the previous three years? • Why was SURE Included in the farm bill? • Why is the same legislative language for SURE included in two different places? • Why were Food Stamp (now SNAP) benefits increased in the farm bill?

13. 2008 Farm Bill (and other) Policy Questions • Why are advances for direct and counter-cyclical payments eventually eliminated in the farm bill? • Why will farmers pay crop insurance premiums sooner and crop insurance companies receive reimbursements later? • Why did the original Senate farm bill change the authorization for the Food Stamp program from a permanent authorization to a temporary authorization that expired at the end of 2012? • Why was the payment rate for the MILC program dropped to 0% on August 1, 2007 in the FY 2006 budget reconciliation bill? • Why don’t the Ag Committees put more funding into Rural Development programs?

14. At Farm Bill Enactment: The Editorial Page Perspective

15. At Farm Bill Enactment: A More Accurate Perspective: 73.3% of Est. FY 08-17 Outlays of $782 billion for Ag Committee Programs Are Nutrition-Related (HAC Rackup of CBO Estimates by Title. March,2007 Baseline)

16. The Congressional Budget Office, Baselines, and Cost Estimates

17. The Congressional Budget Office (CBO) • CBO is one of three Congressional support agencies. (The other two are the Congressional Research Service and the Government Accountability Office) • About 70 of CBO’s 220 employees are Analysts in its Budget Analysis Division (BAD). • CBO’s BAD analysts have two major responsibilities: • Baselines: Develop (3 times per year) 10-year baseline projections of the costs of government programs if current laws were to continue unchanged. • Cost Estimates (aka “Scoring”): Using the baseline as the benchmark, estimate whether proposed legislation would increase, decrease, or have no effect on the federal deficit (or surplus) over the next 10 years if the legislation were enacted.

18. The CBO Baseline • The CBO Baseline is a projection of future program costs for the next 10 fiscal years (beyond the current fiscal year) under the assumption that most current laws and policies continue indefinitely (i.e., the remaining years of authorization and beyond) • The CBO baseline covers all federal government spending and receipts and often provides significant details for many programs. • In constructing Ag Committee baselines, CBO analysts incorporate current and projected market conditions, economic trends, and USDA implementation decisions. • As market conditions change, baseline levels change, too. • Of the 3 CBO baselines for each year (January, March, September), the March Baseline is, in most cases, the “scoring baseline”—i.e., the benchmark from which changes in costs of proposed legislation are estimated

19. Why Baselines Matter • An existing program with a budget baseline needs no additional funding to be reauthorized (i.e., continued) in the 2008 farm bill with the same provisions and funding levels in effect as when its authorization expires. • An existing program without a budget baseline needs new funding to be reauthorized—as does a new program if it is to be authorized. • The impact on the baseline is an important consideration for every provision considered for a farm bill.

20. The CBO Baseline (cont.): • The $50 Million Rule. A program must have outlays greater than $50 million in the current fiscal year to “earn” a baseline for years beyond the authorization period. • Providing a baseline for programs meeting the $50 million rule is automatic for programs first authorized before August, 1997 and up to the Budget Committees for later programs.

21. The CBO Baseline (cont.): • Under budget law, baseline funding levels are estimated based on: • For years during a law’s authorization period, the costs as determined by • (a) the interaction between projected economic or market conditions and program parameters provided in law (e.g., counter-cyclical payments, food stamps) or • (b) specific funding levels provided in law (e.g. Environmental Quality Incentives Program (EQIP)). • For years after a law’s authorization period (i.e., the “out-years”, the same as above except costs are based on the program parameters or the specific funding levels in effect on the last day of a program’s authorization.

22. The CBO Baseline (cont.): • If funding for a program is stopped before the last day of a law’s authorization, no baseline funds are provided. (A few 2008 farm bill programs have no baseline after 2012.) • Baseline Trade-Offs • An out-year baseline provides the funding to reauthorize a program when its current authorization ends. • But that out-year baseline needs to be paid for at the time a program is initially authorized.

23. CBO’s March 2009 Baseline Shows a 32% Increase in Ag Committee 10-Year Outlays Above the CBO Farm Bill Total (using CBO’s March 2007 Baseline). $ Billion.

24. CBO’s March 2009 Baseline Shows Estimated FY 2010-19 (10-Year Budget Authority) of $1.042 Trillion for Programs Under Senate Ag Committee Jurisdiction. 77% of Costs Are Nutrition-Related (HAC Rackup of CBO Estimates)

25. CBO Cost Estimates • Used to determine the costs of legislative proposals relative to the baseline (and, thus, the funding tradeoffs among programs) • Estimates of whether proposed legislation would increase, decrease, or have no effect on the federal deficit (or surplus) over the next 10 years if the legislation were enacted. • A CBO cost estimate (i.e., the “score”) shows the difference over the next ten years between: • Expected federal costs if a new proposal becomes law and • Expected federal costs if current laws are assumed to continue (i.e., “the baseline).” • Remember: the score shows the change in spending--NOT total spending.

26. CBO Cost Estimates (Cont.) • The Budget Committees can (but rarely do) override a CBO cost estimate. • By law, CBO provides an official cost estimate when a bill is reported out of Committee for floor action and when a bill passes both Houses is sent to the President for signature or veto • Official cost estimates are approved by the CBO director and posted on the CBO website: www.cbo.gov • Informal cost estimates are provided by CBO analysts to committees or members as legislation is being developed. Typically, this is a spreadsheet table. Congress and CBO work very closely as bills are being developed.

27. So how bad is the federal budget situation for our children and grandchildren?

28. CBO March 2009 Baseline:Annual Deficit • Annual Deficit: $ Nominal • FY 2009: $1.667 Trillion—Record High nominal $ Deficit! • Previous Nominal $ Record: FY 2008 (last year): $459 billion • Annual Deficit as % of GDP • FY 2009: 11.9% of GDP • largest share of deficit as a share of GDP since 1945. • Fifth highest share of deficit as share of GDP since at least FY 1930. Higher deficit shares: • FY 1943: 30.3% • FY 1944: 22.7% • FY 1945: 21.5% • FY 1942: 14.2% • FY 2008: 3.2% of GDP

29. CBO March 2009 Baseline:Federal Government Debt • Debt = Cumulative Sum of Annual Deficits and Surpluses • Debt Held by the Public • FY 1992: $3.0 Trillion • FY 2000: $3.4 Trillion • FY 2004: $4.3 Trillion • FY 2008: $5.8 Trillion = 41% of GDP • FY 2009 Proj: $7.7 Trillion = 55% of GDP • FY 2010 Proj: $9.0 Trillion = 60% of GDP • Total Debt = Held by Public + Held in Gov’t Acct. • FY 2008 (Actual) = $10 Trillion = 70% of GDP • FY 2019 Proj = $18.8 Trillion = 90% of GDP

30. And Even Before the Current Crisis, We Had Major Long-Term Budget Problems

31. Long-Term Costs for Health Care and Social Security Have Not Been Adequately Addressed

32. A Cash-Based Deficit Calculation Understates the Accrual-Based Net Cost to the Government of Financial Commitments Made in a Year. FY 2008. $ Billion. Source: 2008 Financial Report of the U.S. Government, December, 2008

33. Agriculture and the Budget

34. Two Types of Funding in the Federal Budget:Discretionary Funds • Under Jurisdiction of Appropriations Committees • Generally, costs are paid for one-year at a time through annual appropriations bills. • Programs are supposed to be authorized through an authorizing bill such as a Farm Bill. The authorization of appropriations provides a maximum level but the Appropriations Committees determine if a program is actually funded and the level of funding. • Agriculture Examples: • Salaries and Expenses for USDA • Most Research

35. Two Types of Funding in the Federal Budget: Mandatory Funds • Under jurisdiction of Authorizing Committees such as the House Agriculture Committee • Multi-year costs are fully paid for at the time a bill is passed based on CBO estimates. • If the actual costs come in higher than estimated at passage, the Ag Committees don’t need to find more funding. • If actual costs come in lower than estimated at passage, the Ag Committees don’t get to spend the “extra money” elsewhere. • Agriculture Examples: • Food Stamps • Commodity program costs • Crop Insurance costs

36. The Budget Resolution • The Congress’s Budget Resolution is the Congress’s budget plan for the year. It is a “concurrent resolution” which means that it is not a law. If it passes both houses, it is binding; it is not signed by the President. • The budget resolution contains each committee’s budget resolution baseline. The budget resolution baseline equals the March CBO baseline plus any funding added in the budget resolution.

37. The Budget Resolution (Cont.) • Before the House Pay-Go Point of order was adopted at the start of the 110th Congress, funding added in the budget resolution could be used to offset additional spending. • $79 Billion over 10 years added for the 2002 farm bill • $8.2 Bill over 5 years added for 2000 crop insurance reform • With the House Pay-go rule, this additional funding cannot be used to offset additional funding. In practice now, for most committees, the budget resolution baseline equals the CBO baseline.

38. The Budget Resolution (Cont.) • Once a committee’s budget resolution baseline is set, this becomes its “301(a) allocation”—its share of the federal budget that it is allowed to spend. • Any legislation that a committee reports must not cause the committee’s estimated total spending to exceed its 301(a) allocation. Otherwise, it may be subject to a 302(f) budget point of order on the floor. • The budget resolution is also the vehicle used to initiate budget reconciliation.

39. Budget Points of Order • Budget points of order are potential objections to a bill or amendment on the floor that may be raised by a Representative or Senator who perceives a violation of a budget rule or law. • In the Senate, supporters have the opportunity to waive a point of order by mustering 60 votes. • In the House, if a point of order is raised and sustained, the bill or amendment cannot be considered. (Note that the rules of debate adopted by the House may waive all budget points of order before the bill is considered.)

40. Budget Points of Order (Cont.) • The longstanding budget point of order in the both the House and Senate is the statutory 302(f) point of order. • It forbids the consideration of a bill (including conference reports) or amendments that would cause the total spending for a committee to exceed its 301(a) allocation (i.e., its budget resolution baseline) in the budget year and the following four fiscal years. • It looks only at spending and does not allow increased spending to be offset by increased revenues. It is measured against the Budget Resolution Baseline.

41. Reserve Funds in the Budget ResolutionThe Agriculture Example • Budget resolutions in the 110th and 111th Congress include a number of reserve funds. • Under a reserve fund, offsets from other committees agriculture that reduce spending or increase revenues can be used to offset additional costs of a farm bill. • If Reserve Fund requirements are met, then the bill is not subject to the 301(f) point of order. • $20 billion 5-year “Reserve Fund” for Agriculture in the FY 2008 Budget Resolution. • Reserve Funds were refused by the Ag Committee in the FY 2009 Budget Resolution. • Reserve Fund = Hunting License (Good Luck!)

42. Pay-Go Provision Could Mean No-Go for Farm Bill -- Headline, Politico, April 2, 2008, p. 12 –

43. The House PAYGO Budget Point of Order First Adopted for the 110th Congress (from the Ag Perspective) • New “PAY-GO” Rules were among first rules adopted by new House Democratic majority in January, 2007 • Designed to bring budget discipline to the legislative process. • Under Pay-Go, the net effect of each individual bill must be to not increase the federal budget deficit or reduce a surplus during either the current fiscal year and the next five years or the current fiscal year and the next ten years.

44. The House PAYGO Budget Point of Order (Cont.) • Under Pay-Go rules, the costs of a bill are measured against the CBO baseline rather than, as in the past, the budget resolution baseline. • This precludes adding funds to the CBO baseline in the budget resolution to be used to increase spending without offsets as was done for agriculture in the: • 2002 farm bill (added extra $79 billion over ten years to baseline funds.) • 2000 crop insurance bill (added extra $8.2 billion over five years to baseline funds.)

45. The House PAYGO Budget Point of Order (Cont.) • The Pay-Go point of order applies at all points of consideration—initial bills, amendments, and conference reports (so the Senate must abide by these provisions, too) • Although the House rule for a bill can waive this and other budget points of order, budget and political considerations can make waiving this point of order difficult. • Despite budget and political considerations, Pay-Go has been waived numerous times.

46. Some Believe a Return to Statutory Pay-Go WouldBe an Improvement Over the Current House Pay-Go Point of Order. The Basic Idea: • Statutory Pay-Go was in effect from 1992 until it expired on October 1, 2002. • It was effective in helping reduce the deficit in its early years but less so in later years. • Under Statutory Pay-Go, a cumulative scorecard measuring the net impact on the deficit of bills passed during the session was kept. (Each individual bill did not have to be have an internal offset.) • At the end of the session, if the net impact of all bills passed during the session was to increase the deficit, then sequestraion was to occur. • Sequestration involved across the board cuts for programs subject to sequestration. A number of programs were not subject to sequestration.

47. Budget Reconciliation

48. Budget Reconciliation Basics • Budget Reconciliation: share the pain of reducing the federal deficit by requiring all or most authorizing committees (including agriculture) to change their mandatory spending programs to reduce federal spending. • Reconciliation bills can also contain revenue provisions. • Reconciliation does not apply to discretionary spending under the jurisdiction of the appropriations committees. (Although in a reconciliation year, allowd discretionary spending can be reduced, too) • Budget Reconciliation is initiated by including reconciliation instructions in the annual Congressional Budget Resolution. • Budget Reconciliation Instructions state the amount of reductions from the baseline that each authorizing committee must make for a specified period (typically five or ten years) and a deadline for reporting legislation for doing so.

49. Budget Reconciliation Basics (Cont.) • Although the budget resolution may include suggested changes, each authorizing committee determines what cuts will be made. • If an authorizing committee does not report legislation that CBO scores as meeting its reconciliation instructions by the deadline in the budget resolution, the Budget Committee may provide its own legislation. • When all committees have reported legislation to meet their reconciliation instructions, the budget committee bundles all the legislation into one bill and sends it to the floor.

50. Budget Reconciliation Basics (Cont.) • A budget reconciliation bill cannot be filibustered in the Senate. Debate is limited to 20 hours. • At the start of the 110th Congress both the House and the Senate adopted rules that prohibit a reconciliation bill from increasing the deficit. • The Senate’s Byrd Rule allows a Senator to raise a point of order against any provision that is extraneous (e.g. does not affect outlays or revenues) The point of order can be waived by an affirmative vote of 60 Senators. The Byrd Rule applies to conference reports, too. • The Byrd Rule is a major hurdle for using reconciliation to enact major policy reforms such as Health Care, Student Loans, and Climate Change.